The Financial Conduct Authority’s (FCA) investigation into annuity sales (and possible mis-selling) between 2008 and 2014 is a welcome one.
An enhanced annuity can increase a person’s income by up to 60%, so many thousands of pounds of income may have been denied to some 600,000 retirees.
The investigation should also come as no surprise, given that the regulator told providers to improve their communication with regards to shopping around for enhanced annuities seven years ago.
In my mind, though, the FCA should also look at the wider reasons behind how this happened.
One obvious answer is companies trying to boost their bottom line, and many wake-up packs still don’t make it clear that you can, and should, shop around for potentially better quotes.
‘By accident or design’
As an industry, providers have a tendency to adopt prescriptive technical language to fix problems, resulting in long-winded explanations and jargon that make the documents more confusing.
Essential information, such as reference to the open market, is then easily missed by the reader – either by accident or, dare we say it, by design.
Most people do not understand exactly what a pension is, believing it to be the income received in retirement rather than a tax-efficient savings vehicle leading up to this point, so it shouldn’t come as a surprise that they also don’t understand the technical jargon of a typical wake-up pack.
If you trust your ‘pension provider’, and believe your pension is, in fact, your retirement income, then why wouldn’t you tick the box if your trusted provider writes to you at the time you expect saying ‘this is your income, tick here’?
I would personally like the FCA to look at how it can encourage and facilitate the financial services providers to use plain English to educate consumers in a much clearer, easy to understand way.
They should lean more heavily on the overriding principle of treating customers fairly and less on the addition of endless prescriptive phrases and caveats.
The other related area the FCA could look at is that of annuity providers offering preferential commission rates to select brokers and advisers [This blog was written before the FCA’s proposed intervention on non-advised annuities].
This has the effect that a consumer who goes to an adviser for the best deal may not in fact receive it, despite the adviser being whole of market and firmly believing they are offering the best rate available.
This is neither transparent nor fair on the consumer, and it could also be argued that it undermines the principles of the Retail Distribution Review (RDR).
The investigation highlights the importance of talking to a regulated adviser before choosing a retirement product.
Independent financial advisers are here to help people make the most appropriate decision for their circumstances and to advise when they qualify for, as an example, an enhanced annuity.
Jamie Smith-Thompson is managing director at Portal Financial